Harvey Nash report reveals IR35 Legislation is causing “Concern and Uncertainty”

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Technology talent recruiter Harvey Nash has published its 2019 survey into the sentiment surrounding IR35, a piece of tax legislation aimed at eradicating so-called ‘disguised employment’.

With the rules set to expand into the private sector from April 2020, Harvey Nash has gathered opinions from more than 1,100 contractors and businesses, which the recruiter says “highlight IR35’s ongoing unpopularity among the contractor community”.

Statistics from the survey suggest sentiment among contractors is overwhelmingly negative, with 60% saying they are stressed or worried about the legislation, while 68% believe it will damage UK plc competitiveness.

Kate Cottrell, founder of Bauer & Cottrell, said the report reflects the IR35 specialists’ own experience: “This Harvey Nash sentiment survey is spot on and confirms what Bauer & Cottrell are seeing every day since the new rules were announced. There is concern and uncertainty for all in the contractual chain.”

Although the survey found that 17% of contractors asked plan on raising their rates to cover the additional tax burden posed by the legislation, there has been a suggestion that some contractors may be apprehensive about going on businesses’ payroll systems at all; this is due to the fear that HMRC may view such a move as an admission that higher taxes should have been paid previously, resulting in a retrospective bill. Harvey Nash director, Colin Morley commented: “We could see a drain in the UK because of that, but I don’t think it will be long before they are putting [a] robust determination process in place.”

However, the report has highlighted several obstacles for those contractors that are preparing to move on to companies’ payroll systems. It revealed that more than 50% of businesses stated they are not prepared for the change in legislation, with Ms Cottrell calling the finding “worrying”. She added: “Many of these have been waiting for the Budget and the government’s response to the draft legislation and publication of the final legislation, which were all expected this month but we are now looking at a General Election, which means the dissolution of Parliament (including the Finance Bill) being put on hold.”

The investigation suggests this lack of preparation is being exacerbated by HMRC’s own lack of assistance, with 87% of firms saying they don’t feel HMRC are doing enough. This statistic prompted Harvey Nash’s Director of Portfolio Solutions, Will Jones, to call on HMRC to do more: “What we need now is for HMRC to help us all by giving clear and precise guidance to remove ambiguity. Sadly, the well-documented experiences of the public sector, suggest such help will not be forthcoming in time for April 2020.” ContractorCalculator and IR35 Shield CEO, Dave Chaplin, echoed this sentiment, saying: “HMRC claim they are going to provide extensive help to businesses, yet have only published measly guidance which does not tell businesses how to prepare.”

Another potential barrier to contractors is the 1 in 5 businesses that are considering cutting the use of off-payroll workers completely. Mr Morley says a few companies will probably have a knee-jerk reaction to the changes. But, he believes a far greater number will decide to make case-by-case status determinations once things calm down. He added that moving all contractors onto PAYE could end up being too expensive for companies, as they will have to take into account the extra costs of holiday pay, pensions and sick pay. With this in mind, he called on firms “to make their IR35 strategy crystal clear to the contractors who rely on them.”

Amid this environment of uncertainty and concern, Ms Cottrell said contractors and companies need to take the initiative: “No one can afford to wait for the detail and must prepare now based on what we know thus far. The parliamentary situation is just adding to the stress and worry found by this excellent survey.”

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